From Russ Fox, E.A., of Clayton Financial and Tax of Las Vegas, Nevada. All of the items below are for information only and are not meant as tax advice. Please consult your own tax advisor to see how each item impacts your own situation.

So what does this mean? First, I don’t think there’s potential that the bankruptcy will get very litigious, complex and long; rather, there’s near certainty that it will. I earlier wrote that the bankruptcy would take “a long time” to resolve; I think that’s certain.

Additionally, that the other lawsuits are going forward is bad news for the current owners of CEC. Imho, they were hoping that they could create a “bad” company, get rid of a ton of debt, and emerge from Chapter 11 with something of value. That’s now less than an even bet.

Instead, the lawsuits are likely telling the truth: That CEOC was created as a way of shuffling assets. This means it is now more likely than not that the rest of Caesars will end up in Chapter 11.

That would put a stop to the lawsuits. It would also mean the current majority owners of CEC (Apollo Global Management and TPG Capital) will see the value of their investment go towards $0. It could also mean that some of the current assets of Caesars will end up being sold. The big problem with Caesars is their debt load. Bankruptcy will get rid of the debt, and many of the underlying assets have substantial value.

One last certainty: The lawyers involved will be making plenty of money.

The Report of Foreign Bank and Financial Accounts (Form 114, the FBAR) is due on June 30th. The form must be electronically filed with FINCEN. Your tax professional may be able to do it through his software (we can) or you can do it yourself using the BSA EFile system. There is now an online form you can use (besides Adobe reader) that may work better (it certainly can’t work worse).

Because of the Hom decision of last year, we now must again report foreign online gambling accounts. That’s basically all online gambling sites except the legal sites in Delaware, Nevada, and New Jersey. I maintain a list of online gambling sites and their mailing addresses here.

There are ridiculous penalties if you willfully fail to file an FBAR (half the balance in the account or $100,000 (per account), whichever is greater). Thus, as I said last year, just file the FBAR…timely.

I’ve posted before on staking, but someone asked me the following question:

I’m a professional [poker player] and am going to be staked for the High Roller One Drop Tournament [a $111,111 buy-in tournament]. I’m going to be handed the cash to enter the tournament. What do I need to do?

Besides the normal staking issues (seethesearticles), there’s another issue: cash reporting. If you’re a business and you receive a payment of $10,000 or more in cash or like funds (this would include casino chips but would not include a cashier’s check), you have a reporting requirement: You must file Form 8300 with the IRS.

A professional poker player is operating a business and is required to comply with the laws impacting businesses. This includes cash reporting requirements. You have 15 days from the date of the cash transaction to report it. This is done by either mailing Form 8300 to the IRS or by filing it electronically through the BSA efile website. Note that if you use the BSA efile system you will have to register (required for Form 8300 efiling).

Like most penalties related to the Bank Secrecy Act, the penalties are on the ridiculous side. While the Failure to File penalty is just $100, the Intentional Failure to File penalty is the greater of $25,000 or the amount of the cash transaction (to a maximum of $100,000).

The IRS does take questions regarding Form 8300. You can call the IRS at 866-270-0733 or email questions to 8300questions@irs.gov

The 2015 World Series of Poker begins on Wednesday at the Rio Hotel and Casino here in Las Vegas. While many things have changed for this year (for example, the WSOP will have a “Colossus” tournament this coming Friday and Saturday with possibly 20,000 entrants), some things have not. The Rio will continue to refuse to accept IRS Form 5754 for individuals backed (or ‘staked’) by others.

This player-unfriendly policy exists at few casinos, and it places a burden on players. Back in 2007 I wrote about this situation. It has now been eight years and nothing has changed. If you’re backed, you have to send out 1099-MISC’s or 1042-S’s for your backers:

If you’re backed by an American get a signed and completed Form W-9 from him before you pay him. If someone refuses to complete a Form W-9, you are required to withhold.

The issuance of 1099s is based on you backer profiting $600 or more for the entire year. So realize that if you have backers who profit $600 or more, the onus is on you for sending out Form 1099-MISC’s. (The 1099s are not sent until year-end.)

If you’re backed by a non-American, the situation is far more complex. You will need to obtain a Form W-8BEN; make sure it’s the new version that was released this year. The form must be complete in order for you not to withhold. It must have an ITIN, a Tax Treaty Article noted, with reasoning why there is no withholding, and it must be signed and dated. If you don’t have the complete paperwork, you must withhold even if your backer is from a Tax Treaty friendly (for gambling) country. If you don’t, you could be held liable for the tax plus penalties and interest! For specific scenarios, see this article I wrote in 2011.

Contrast the policy of the Rio to the player-friendly policies at other venues in Las Vegas that will be running other tournament series. The Venetian (which will run its Deep Stack Extravaganza), Binion’s (which has the Binion’s Poker Classic), and Caesars’ owned Planet Hollywood (with its Goliath Series) will all issue multiple W-2Gs for winners.

The policy of the Rio violates IRS rules. Unfortunately, only two sets of individuals can force the Rio to change its policy: WSOP management or the IRS. It’s clear that WSOP management is willing to accept the risk of violating the rules. They’re likely thinking, ‘We’ve done it for seven years and nothing has happened; there’s no reason to make a change that will cost us money.” I know that players have complained about it to the powers that be at the WSOP but they haven’t budged.

The IRS could also get involved. I recently spoke to two individuals at the IRS and mentioned this issue to them. Unfortunately, I have no idea if either will do anything about it (though both took notes on what I told them). Even if something were to happen it’s not likely to happen quickly: The IRS is not know for expedience in the best of times. Meanwhile, I get to issue 1099s for clients impacted by the Rio’s policies.

If you’re coming to Las Vegas for the WSOP or any of the other tournament series in town, have fun and good luck at the tables. Just remember that you will likely need to issue your own 1099s or 1042-S’s if you are backed.

With the United States v. Hom decision, we must again file an FBAR for foreign online gambling sites. An FBAR (Form 114) is required if your aggregate balance exceeds $10,000 at any time during the year.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Well, not fully completing the Form 114 can subject you to a substantial penalty. I’ve been compiling a list of the addresses of the online gambling sites. It’s presented below.

There is one major change for 2015. FINCEN does not want dba’s; however, they’re required for Form 8938. One would think that two different agencies of the Department of the Treasury would speak the same language…but one would be wrong.

You will see the entries do include the dba’s. Let’s say you’re reporting an account on PokerStars. On the FBAR, you would enter the address as follows:

You will also see that on the FBAR spaces in a postal code are removed; they’re entered on Form 8938. You can’t make this stuff up….

Finally, I no longer have addresses for Bodog, Bovada, or Bookmaker.eu. If anyone has a current mailing address, please leave it in the comments or email me with it. [I have found an address for Bookmaker.eu which appears to be current.]

Note: This list is presented for informational purposes only. It is believed accurate as of March 5, 2015. However, I donottake responsibility for your use of this list or for the accuracy of any of the addresses presented on the list.

This morning the IRS proposed a new Revenue Procedure for individual taxpayers to determine wagering (gambling) gains and losses from slot machine play. Additionally, the IRS proposed an update to the regulations on information returns for gambling from slot machines.

There’s a lot to like in IRS Notice 2015-21, the IRS’s proposal for a “Safe Harbor Method for Determining a Wagering Gain or Loss from Slot Machine Play.” The proposal is for a daily session for slot machine play where there are electronic records. Let’s say an individual plays slot machines at Bellagio from 10:00am – 12:00pm and from 3:300pm – 5:00pm. That can all be combined into one session per this revenue procedure (if it is finalized).

Some things are not allowed. The day ends at midnight, so if a player is playing slot machines from 11:00pm to 1:00am, that would be two sessions (11:00pm – 11:59pm and 12:00am – 1:00am). Additionally, play at different casinos cannot be combined. Finally, each session stands on its own; a gambling loss from a session cannot be netted with a gambling win from another session.

The IRS doesn’t really have a choice in allowing session reporting of gambling; court decisions and an opinion from the IRS General Counsel have endorsed this. The proposed Safe Harbor procedure appears, at first glance, to strike a reasonable balance of session reporting with IRS verification. The only issue I see is that daily reporting is not normally provided to patrons by casinos.

The proposed regulation does not change the reporting threshold for when a W-2G is issued for slot play:

Under the proposed regulations, the reporting thresholds for winnings from bingo, keno and slot machine play (other than electronically tracked slot machine play) remain the same as under the existing regulations. These thresholds are intended to reach a balance between reporting burden and compliance risk. Based on over 35 years of experience with the current thresholds, the IRS thinks they are sufficient at this time to verify correct reporting of wagering income. Accordingly, §1.6041-10(b) of the proposed regulations provides that reportable gambling winnings means (i) $1,200 or more in the case of one bingo game or slot machine play, and (ii) $1,500 or more in the case of one keno game. However, advances in technology in the nearly four decades since the existing rules were adopted may overcome the compliance concerns that prompted the higher reporting thresholds and may warrant reducing the thresholds for bingo, keno, and slots to $600, consistent with other information reporting thresholds under §6041(a). Accordingly, the IRS and Treasury will continue to monitor the effectiveness of the existing (and proposed) reporting thresholds, and may propose to reduce those thresholds at a future time. Comments are specifically requested regarding the proposed reporting thresholds, including the feasibility of reducing those thresholds to $600 at a future time, whether electronically tracked slot machine play should have a separate reporting threshold, and whether the amounts should be uniform for bingo, keno, and slot machine play.

If anything, the threshold should be raised, not lowered. The value of a 1977 dollar today is a bit over $4. Thus, an equivalent threshold today is $4,800. I doubt the IRS will like my opinion on this. I am certain that casinos will not want the threshold lowered.

There’s more in this (this notice runs 30 pages), but it is Tax Season and I have a lot of work. I will report on this again after April 15th.

Last week Caesars Entertainment Operating Company (CEOC) filed for Chapter 11 bankruptcy in Chicago. One week ago, second-tier bondholders filed an involuntary bankruptcy petition in Delaware. A company can only be in one bankruptcy court, so there’s an obvious issue: Which bankruptcy filing will “win”? And what will the future bring to Caesars?

I’m going to do some speculation in this post. Be forewarned that I am not an attorney, so my views are just that: my views on the topic. I was in corporate finance for many years prior to being in tax, so I am familiar with many of the issues involved.

1. Why did Caesars file for bankruptcy in Chicago? They are a Delaware corporation headquartered in Las Vegas? In bankruptcy, you can file anywhere you have nexus. Caesars has two casinos in Illinois, so the Northern District of Illinois is a possible choice. Presumably, Caesars looked at the likely judges anywhere in the country they could file (including Courts of Appeal–here, the Seventh Circuit Court of Appeals) and liked the Northern District of Illinois over other choices.

2. Then why did the second-tier creditors file in Delaware> Caesars is a Delaware corporation, so a filing in Delaware is also valid. The second-tier creditors probably did the same analysis as Caesars and liked the Delaware judges and the Third Circuit Court of Appeals.

3. There are two bankruptcies: the involuntary petition in Delaware and the voluntary petition in Chicago. Which one is likely to stand? This is the question today, and it’s a pick-em. There is a burden on the second-tier creditors, but the federal court ruling in New York gave them some advantages. Judge Kevin Gross in Delaware will end up making the initial call. That said, if he rules that the case should be in Delaware, I expect that CEOC will file an appeal.

4. How long will the bankruptcy process take? A long time. While CEOC wanted a prepackaged bankruptcy where most everyone agreed, that just isn’t happening. True, 80% of the senior (first-tier) creditors approve of the restructuring. However, no other class of creditors is happy. While it’s theoretically possible that Caesars will exit bankruptcy in 2015, it’s not likely.

5. Who will profit from the bankruptcy? That’s a question with a sure answer: the lawyers.
6. Why aren’t all of Caesars’ hotels included in the bankruptcy? If you look at the list, some of the hotels are merely operated by Caesars and won’t be included in the bankruptcy even if the second-tier debtholders win. However, it is definitely possible that the bankruptcy could expand and take in more of Caesars than just CEOC.

7. Will this impact the World Series of Poker? It’s not likely to have an impact for 2015, but it definitely could sometime in the future. The WSOP is owned by Caesars Interactive Entertainment, Inc.; that’s not currently part of the bankruptcy filing (but it could be if the second-tier wins out).

8. Could some of Caesars’ properties be sold? Definitely. If this does not end up being a prepackaged bankruptcy, then each tier of debtors will propose a plan. One plan could be to auction various properties, so it’s definitely possible.
9. Why did Caesars file bankruptcy? CEOC has been losing money for years and has over $18 billion in debt. The problems stem from the leveraged buyout that Caesars went through several years ago. At that time, the economy was booming and had things continued at the same rate Caesars would have been fine. That didn’t happen.
10. What will happen to the stockholders of CEOC? That’s another question with a certain answer: Their stock is near worthless.

As 2015 progresses we’ll have a better idea how the reorganization of Caesars progresses. It will have a huge impact here in Las Vegas, and it is likely that things will not work exactly how Caesars management want. We’ll get an early read on this when Judge Gross rules on where the bankruptcy actions will take place.

It’s time for businesses to send out their annual information returns. These are the Form 1099s that are sent to to vendors when required. Let’s look first at who does not have to receive 1099s:

Corporations (except attorneys)

Entities you purchased tangible goods from

Entities you purchased less than $600 from (except royalties; the limit there is $10)

Otherwise, you need to send a Form 1099-MISC to the vendor. The best way to check whether or not you need to send a 1099 to a vendor is to know this before you pay a vendor’s invoice. I tell my clients that they should have each vendor complete a Form W-9 before they pay the vendor. You can then enter the vendor’s taxpayer identification number into your accounting software (along with whether or not the vendor is exempt from 1099 reporting) on an ongoing basis.

Remember that besides the 1099 sent to the vendor, a copy goes to the IRS. If you file by paper, you likely do not have to file with your state tax agency (that’s definitely the case in California). However, if you file 1099s electronically with the IRS you most likely will also need to file them electronically with your state tax agency (again, that’s definitely the case in California). It’s a case where paper filing might be easier than electronic filing.

If you wish to file paper 1099s, you must order the forms from the IRS. The forms cannot be downloaded off the Internet. Make sure you also order Form 1096 from the IRS. This is a cover page used when submitting information returns (such as 1099s) to the IRS.

Note also that sole proprietors fall under the same rules for sending out 1099s. Let’s say you’re a professional gambler, and you have a poker coach that you paid $650 to last year. You must send him or her a Form 1099-MISC. Poker players who “swap” shares or have backers also fall under the 1099 filing requirement.

Finally, there are strict deadlines with information returns. Here are the deadlines for 2014 information returns:

Monday, February 2nd: Deadline for mailing most 1099s to recipients;

Monday, March 2nd: Deadline for filing paper 1099s with the IRS (postmark deadline); and

Tuesday, March 31st: Deadline for filing 1099s electronically with the IRS.

Remember, if you are going to mail 1099s to the IRS send them certified mail, return receipt requested so that you have proof of the filing.

Nine individuals came to Las Vegas on Monday and Tuesday to compete for the championship at the World Series of Poker (WSOP). Who would be the lucky winner? And who really got to keep the money?

You will notice a theme to this year’s winners: London. Four of the players reside in the capital city of the United Kingdom yet none are from London. Indeed, they’re all from other European countries. The reason they’ve chosen the United Kingdom is simple: taxes.

Tax rates in Europe are notoriously high. But citizens of the European Union are allowed to move and reside in another E.U. country (as long as they pay that country’s taxes). The United Kingdom beckons to poker players for a simple reason–gambling income is not taxed in the U.K. A tax rate of 0% looks quite good in comparison to tax rates of 75% in some E.U. countries.

One other note: I do need to point out that many of the players in the tournament were “backed.” Poker tournaments have a high variance (luck factor). Thus, many tournament players sell portions of their action to investors to lower their risk. It is quite likely that most (if not all) of the winners were backed and will, in the end, only enjoy a portion of their winnings. I ignore backing in this analysis. Now, on to the winners.

Congratulations to Martin Jacobson. Mr. Jacobson’s pair of tens beat an Ace-Nine to win the championship. The native of Sweden won an even $10 million. Mr. Jacobson resides in London, and the reason is obvious. Had he still been living in Sweden he would have faced a 56% marginal tax rate to Sweden’s very aggressive tax agency, Skatteverket. Being able to enjoy 100% of your income rather that 44% sure sounds good to me! Saving $5.6 million in taxes by residing in London sounds like a no-brainer to me.

Finishing second was yet another resident of the United Kingdom, Felix Stephenson. The native of Norway has to console himself with $5,147,911 for finishing second. Had he still been living in Norway, he would owe $2,007,685 in tax to Skatteetaten, the Norwegian tax agency (39%). Instead, he owes nothing.

In third place was Jorryt van Hoof for $3,807,753. He didn’t earn sponsorship income from poker sites, though. While he could accept such income, the sites were informed by the Dutch gambling regulator, Kansspelautoriteit, that such sponsorship would be considered advertising to the Netherlands under Dutch law and is illegal. As for residing in London, that saved Mr. van Hoof $1,104,248. The Netherlands taxes gambling at a flat 29% rate. For an extra $1.1 million, even I would take the weather in London.

Finishing fourth was William Tonking, a professional poker player from Flemington, New Jersey; he won $2,849,763. Unlike the first three finishers Mr. Tonking does not get to enjoy all of his winnings. He will owe an estimated $1,073,024 to the IRS and $242,733 to the New Jersey Division of Taxation–a combined tax rate of over 46%.

An obvious question arises: Why doesn’t Mr. Tonking also move to London? Unlike his European competitors, Americans owe tax on their worldwide income. An American living abroad still must file a tax return with the IRS. Taxation for expatriates can be reduced by the Foreign Earned Income Exclusion, tax credits on income taxed by other countries, and tax treaties. For an American playing poker in the United Kingdom, the Exclusion is available. However, for a poker tournament in Las Vegas there are no legal means to reduce that taxation.

Billy Pappaconstantinou of Lowell, Massachusetts finished fifth for $2,143,794. But that’s before taxes. Mr. Pappaconstantinou is an amateur poker player (he’s a professional foosball player), so he’s not subject to the self-employment tax. I estimate he’ll owe $771,827 to the IRS and $111,477 to the Massachusetts Department of Revenue.

In sixth place was Andoni Larrabe. Mr. Larrabe earned $1,622,471 for his finish, and he’ll get to keep all of it. The native of Spain is the last of our London residents. Given the top marginal tax rate of 52% in Spain, I can understand why he now calls London his home. Interestingly, Mr. Larrabe effectively finished in fourth place; his after-tax income puts him ahead of the fourth and fifth place finishers.

Daniel Sindelar of Las Vegas ended up in seventh place. The professional poker player earned $1,236,084 before taxes. Nevada does not have a state income tax, so Mr. Sindelar will only owe tax to the IRS. I estimate he’ll owe $494,397 in tax (40.00%)

Finishing in eighth place was Bruno Politano of Forteleza, Cera, Brazil. The second amateur of the final nine players, Mr. Politano won $947,172. The US-Brazil Tax Treaty does not exempt gambling winnings from withholding, so an even 30% of his winnings ($284,152) were withheld and remitted to the IRS. It appears that Brazil taxes some gambling at 30%. It’s unclear if the poker income would normally be subject to taxation. However, even if it is it’s unlikely Mr. Politano will owe any tax to Brazil given that he can claim a tax credit on the money withheld to the IRS.

Mark Newhouse of Los Angeles finished in ninth place. A professional poker player, Mr. Newhouse did not win anything additional to the $730,725 he took home in July. I estimate he’ll lose just over 44% to tax ($324,167). If that name looks familiar to you, it should: Mr. Newhouse finished ninth last year, too. That’s an incredible accomplishment though I’m sure Mr. Newhouse is disappointed in not finishing higher.

Here’s a table summarizing the tax bite:

Amount won at Final Table

$28,485,673

Tax to IRS

$2,869,698

Tax to New Jersey Division of Taxation

$242,733

Tax to Massachusetts Dept. of Revenue

$111,477

Tax to Franchise Tax Board (California)

$77,869

Total Tax

$3,301,777

That’s a total tax bite of 11.59%.

Here’s a second table with the winners sorted by their estimated take-home winnings:

Winner

Before-Tax Prize

After-Tax Prize

1. Martin Jacobson

$10,000,000

$10,000,000

2. Felix Stephenson

$5,147,911

$5,147,911

3. Jorryt van Hoof

$3,807,753

$3,807,753

6. Andoni Larrabe

$1,622,471

$1,622,471

4. William Tonking

$2,849,763

$1,534,006

5. Billy Pappaconstantinou

$2,143,794

$1,260,490

7. Daniel Sindelar

$1,236,084

$741,687

8. Bruno Politano

$947,172

$663,020

9. Mark Newhouse

$730,725

$406,558

Totals

$28,485,673

$25,183,896

While Andoni Larrabe finished in sixth place, he ended up in fourth place based on his after-tax income. Unlike the fifth through ninth place winners, Mr. Larrabe gets to keep all of his winnings. It’s always nice when your after-tax income equals your before-tax income.

I’ve been doing this analysis for several years, and this is the first year that the IRS didn’t finish in first place. Indeed, the IRS’s take of $2,869,698 puts it in fourth place. The tax agency can only hope that next year’s winners will not include individuals from the United Kingdom.

For the past several years I’ve ended my post on the WSOP with, “That’s because we all know that the house–the IRS–always wins.” This year, that’s not the case for our four European winners. This year, the house doesn’t always win–when you’re a resident of London. The winners residing in London saved $9.55 million in tax! London is definitely calling for European professional poker players:

UPDATE: A commenter on Twitter asked about Caesars Entertainment’s tax bite. The results from the WSOP should be included in Caesars’ third quarter results. Caesars withheld 6% of each $10,000 entry fee ($600). There were 6,683 entrants, so Caesars earned from the players $4,009,800 before expenses of running the event (dealers, staff, incidentals, etc.). Caesars also has a contract with ESPN for televising the event.

But let’s assume that somehow the courts allow this. There’s an issue that will put New Jersey at an extreme disadvantage to Nevada’s legalized sports betting: taxes. Specifically, the Excise Tax on Wagering.

IRC 4401(a)(1) imposes a 0.25 percent tax on the amount of any wager authorized under the law of the state in which accepted.

IRC 4401(a)(2) imposes a 2 percent tax on the amount of any wager not described in IRC 4401(a)(2) (i.e., those not authorized by state law).

This doesn’t apply to all betting in the US; it applies to:

IRC 4404 provides that the tax applies to wagers:

• Accepted in the United States, or
• Placed by a person who is in the United States with a U.S. citizen or resident, or in a wagering pool conducted by a U.S. citizen or resident.

As noted in an IRS analysis on this tax, this tax applies just to sports betting (and wagering that involves a sports bet). An interesting issue is whether this tax applies to fantasy sports, such as daily fantasy sports. I suspect it does, but that’s another issue for another day.

So let’s say you place a bet at the Bellagio sportsbook, betting $100 that the Chicago Bears will beat the San Francisco 49ers. Out of the Bellagio’s “juice”–your bet will typically cost you $110 or $120, with the house (Bellagio) keeping that extra money–Bellagio must pay the 0.25% wagering tax. On a bet of $100, that’s $0.25. The Bellagio remits the tax using Form 730.

New Jersey argues that federal law sort of allows any state to conduct sports betting. From crAAker’s analysis:

New Jersey seeks to avoid the licensing problem by asserting that the licensing provisions can be severed from the statute. Severability is a common law doctrine which permits a court to invalidate one section of a statute while leaving the remainder in force. In this case, the statute contains an explicit legislative endorsement of severability (Section 5:12A-2(g)), which expresses the legislature’s intent to have a court attempt to enforce the statute in the event the statute was found to violate PASPA and creates a legal presumption in favor of severability.

Since New Jersey has not authorized sports betting–the only law that was passed by New Jersey was not allowed to be put into effect by the federal courts–the higher 2% rate applies. That means that the Borgata would owe $2 to the IRS rather than the $0.25 that Bellagio owes on a $100 sports bet.

A fundamental principle of economics is that all government fees and taxes are passed on to the consumer. The additional $1.75 that a New Jersey sportsbook would have to pay would be passed on to the New Jersey sports bettor. That will make betting more expensive in New Jersey than Nevada. Even if somehow the courts were to allow sports betting in New Jersey, it will be at a higher price to the consumer than in Nevada.

I suspect the courts are going to throw buckets of cold water on the idea of legal sports betting in New Jersey. However, even if they don’t the IRS would make it a bad bet.